Failed public loans in Fox Valley cost $1M

Reflecting a statewide trend of mixed results, public loans to businesses in the Fox Valley during the past decade generally were paid off on time, while some were written off.

A Post-Crescent Media review of 105 loans from local development funds totaling $22 million shows a majority hit payoff guidelines. But several failed ventures led to about $1 million in losses for taxpayers.

In Neenah, for instance, half of a $50,000 loan to the restaurant Choices in 2003 was repaid before the business folded. That's opposed to more successful deals like the $41,000 that helped start Zuppas that was fully repaid by 2006.

Businesses look to local economic development funds to spur job creation. While some funds originate from federal or state sources, local officials supervise and sign off on the loans that can come with more risk than a bank would accept.

Dan DeBonis, finance director for Calumet County, said the loans are usually paired with banks or U.S. Small Business Association backing.

"We'll also look for personal guarantees and can file a lien against a personal mortgage if things don't go well," DeBonis said. "Unfortunately, a bankruptcy filing usually washes that all away."

That was the case in 2007 when Top of the Ledge campground in Chilton stopped $52,000 short of paying its $60,000 from a revolving loan fund. The company went into bankruptcy and a court discharged claims for payment. Calumet County had to write off the $52,000 in 2010.

Since then, the campground is under new ownership and has expanded as Lakeview Campground with 136 sites overlooking Lake Winnebago.

Outagamie County has money to use

Outagamie County has a revolving loan fund that filters money from the federal government to local businesses. About $800,000 is available for loans, said Finance Director Brian Massey. When loans are repaid, the money can go back out to new expansions or business ventures.

"Our application requires $1 private funding for each $1 county money," Massey said. "They may be slightly riskier than a bank, but that's what we're here for, to help businesses that may not be eligible for a full mortgage from a bank."

Outagamie's most recent loan, $80,000 went to startup Gather Americana Restaurant, 213 S. Nicolet Road, Grand Chute. Some other county loan programs, like Brown County, refuse to loan money to restaurants, since they tend to fail at a higher rate than other businesses.

John Chastain, owner of Gather Americana, said the money was paired with bank funding and personal capital to get the business off the ground in February. Chastain must repay the loan by 2021.

He said it's a good investment for taxpayers.

"Anytime you spend a tax dollar there's liability or risk. In this case, these tax dollars are going to support jobs," Chastain said. "The process wasn't overburdening and is a good way to do economic development."

Seeking more impact

More than a dozen counties and cities in east-central Wisconsin want to band together to leverage the revolving loan system. The idea was loosely organized last summer and gained traction at the behest of the Wisconsin Economic Development Corp.

Several communities signed off on "buying in" to the group pot of money that was expected to generate at least $12 million. Appleton's Common Council, for instance, voted to contribute $500,000 in its 2014 budget.

But the collaboration hit a snag this summer when the program's oversight transferred to the Department of Administration, and a federal ruling was delayed.

At issue is whether the organization is set up appropriately under U.S.Housing and Urban Development standards to "de-federalize" the money. Once a federal loan is repaid to a local community, it can be recirculated by that local agency if it is appropriately de-federalized, or disconnected, from federal oversight. That eliminates restrictions on how the money is used.

"We still haven't received a definitive answer from HUD to see if it will pass muster," said Allen Buechel, Fond du Lac's county executive. "We want jobs and decent-paying jobs to increase the tax base. It will be good if it gets off the ground."

Outagamie County Deputy Executive Craig Moser said the red tape has hurt the process.

"We've been working on this for 19 months and trying to work with the state — they're the ones who suggested this in the first place," Moser said. "We've committed to buying in with the $800,000 balance of our fund and hopefully will hear back soon so we can attract larger projects to our region."

Department of Administration spokesman Cullen Werwie said the agency is waiting on HUD.

"HUD's technical adviser found that a similar loan fund in California was not implemented. He recently stated we are 'back to the drawing board,'" Werwie wrote in an email.

The Gannett Wisconsin Media Investigative Team gathered data on nearly 1,000 loans to examine the efficiency and impact of local economic development funds.

The programs serve a similar role to the statewide Wisconsin Economic Development Corp. but typically receive less scrutiny. Gannett Wisconsin Media filed public records requests in March with more than 50 cities, counties and villages in central and eastern Wisconsin for information on all loans current as of January 2004 or issued since.

In all, 42 entities provided records on 965 loans issued by municipalities or regional development groups. In many cases, the money originated at the federal or state level, but all business loans approved and administered by a local group were included in the analysis.

Sunday: Local business loans bring risk, reward

Monday: Public loans struggled amid recession

Today: How Fox Valley funds perform

Search online database

Get details on nearly 1,000 loans issued by local development groups in our searchable database, online with this story at postcrescent.com.

Revolving loan funds

Local revolving loan fund programs are approved and overseen by cities, counties or regional development groups and offer loans to help pay for business expansions or start-ups, with repaid money used to pay for additional investments. The money often originates as federal Community Development Block Grant dollars, but some entities also use local property taxes to pay for the program or make up losses when loans are written off.